Tuesday, March 01, 2011

Dollar Double Tests the Trendline

At the start of February, on Groundhog Day, the Dollar came down and tested a trendline that has provided resistance since Bear Stearns Day in 2008 (the day Bear went under). Apparently the Dollar saw its shadow when it bounced last Groundhog Day, and has remained in the winter of its discontent - it is now back to that level, a double-test in less than a month.

This trendline has provided resistance since March 2008, at lows in August 2008 as we began the great slide down, in Nov 2009 as the Hope Rally appeared to stall, and more recently in Nov 2010 at the kick-off of QE2. It is now Groundhog Day all over again for the Dollar, as it once again has come down to the critical support level (chart courtesy EWTrends):

The primary basis for these assertions is the oil trade, which has been primarily in Dollars since a deal was cut in 1973, after Nixon went off gold. Given the Brent Crude market, an increasing quantity of oil is being bought directly with Euros, which suggest that the world's reserve currency is moving to a basket of at least the Dollar and the Euro.

Still, these pronouncements seem grossly overblown. Sentiment is very bearish against the Buck, at similar levels to the Nov 2009 and Nov 2010 bounces, and according to the STU, the total net positions against the Dollar are at the extremes of the Bear Stearns low and the Nov 2009 low. This suggests another bounce is imminent.

A lot of folk are watching for a first-day stock bounce as we march forth to a new month. I suggest watching the Dollar instead for an indication of what is to come.

Da bear, Theorist normally comes out mid month; sometimes early to keep the faithful in line, but usually around the 14th or 15th. Monthly Financial Forecast should be out this Friday, which means they get a really good read if the correction is still on and gaining steam.

Neely put out an emergency short today. Market has fallen enough off 1327 that it seems we are still in a down tick. And of course the first-of-the-month pop fizzled.

I think the test is 1275. Think of it as a classic ABC zigzag where B went 62% (in Dow, a little more in S&P) and C = A. Hence the first test is 50 pts below 1327 or 1275 area, the January low. We might very well find a bottom there and continue northwards towards QE3.

If we break thru 1275, then recharacterize this as a 1-2-3 down with wave 3 extending, Since A=50 pts, an extended C or now wave 3 should go 1.6x or 80 pts, another 30 pts down below the 1275 range. So call it 1250 +/-.

If we do that, we have a 4-5 to go. A 4 of an extended 3 normally retraces the extension, so back to 1275 again (38% of the 80 pts down). Then 5 normally = 1 or another 50 pts, down to 1225.

Then we get a wave 2 of at least 50%-62% of the whole drop (1344 to 1225 or close enough to 120 pts) so 60-75 pts back, or to the range of 1285-1300. Then a deeper wave 3 that should go 1.6x the first wave down from 1344 to 1225, or a drop off 1285-1300 of 195 pts, targeting 1090. Etc.

"When you are looking at purely dollars and cents, it doesn't really make a lot of sense. The Volt isn't particularly efficient as an electric vehicle and it's not particularly good as a gas vehicle either in terms of fuel economy."

Among other failings, the car traveled only 25 to 27 miles on electric power alone, while testing on winter roads. GM says the car regularly achieves up to 33 miles.

And it's "annoying" that the car takes five hours to charge.

And it costs twice as much as Toyota's Prius, a hybrid which is more fuel efficient when driving long distances.

on a 10 day chart, five waves down could be hit in the next few days, with a wave iii down to around DOW 12,000, a bounce back iv and then weakness today. EWI FF could mark the first move down of BIG 3.

I want to see if they mention gold. If they still have silver in a giant B wave then I wonder if gold is in a B wave too, which I think is the best count. If so, then gold/silver are in an a-b-c upward B correction off the 1980 top. Wave a ran up from 2000 to 2008 with the b low in late fall 2008. Since then, five waves in both are basically in, although on a log scale GLD has a little bit more room to run. So, this may just be a giant sucker's rally for the gold bugs.

That would mean that the end of the bear market in gold in a couple of years or so would also mark the end of the bear market in stocks.

Silver is up 4 times off the late 2008 low. I feel that that is somewhat extreme. Gold is more like a double off the low.

It's almost like the Volt is a better range-extended electric vehicle than the Prius - which is not an electric vehicle but a standard petrol-powered car with electric assist. They are two very different types of vehicles, but ultimately the Volt is the more versatile since ANY kind of powerplant can be used to run the generator, where as the Prius NEEDS a petrol or diesel motor connected directly to the running gear.

The Volt's gas engine directly powers an electric motor while the Prius has the gas engine & electric motor separate. It's the next step but it's got a long way to go. Without that special charging station, it takes 10 hours to power up. The all electric Nissan leaf takes 19.

Virgil and others on the Volt – My kids each own prius's and my wife a lexus hybrid, so have driven those sorts of electric cars. My prior VC firm invested in Tesla & I have driven it. EVs drive differently than internal combustion – smoother. The Tesla is a kick with incredible torque. You can throw your passenger back in the seat, feeling the G's as you put the pedal to the metal. First point: one can get a different driving experience.

The Volt looks like a leap ahead, although it does not catch up in price/performance to its cousin, the Chevy Cruze. Half the price (even after subsidies) and similar driving performance. Volt has much better overall gas mileage, but the delta in price would take over 100K miles to overcome in gas savings, even at $4/gallon levels. Second point: oil is a magic elixir of the sort dreamed about in fairy tales, and electricity can not compete in power for the size/cost.

Many Prius's were bought to get the carpool lane stickers in California. I suppose we could have gotten tot he same place by charging a fee to use the carpool lanes, but it is what it is. When the stickers expired as a promotion, Prius sales dropped in half, but still sustained despite cheaper gas alternative. Third point: thee are other elements to the value proposition than a strict price/performance trade-off.

I think the Volt will do better than the Leaf and other pure-electric vehicles, due to the fear of running out of fuel at the wrong point. The Volt's range extender let's you drive from SF to LA without such fear.

Right now it is fantasy to see EV's as challenging the supremacy of the internal combustion engine. As a nation we may need to rotate our fleet off oil to something else, but it would take government coercion or carrots to have a chance to get us there – or much better EV innovation. The latter is possible although the physics are challenging. Lithium batteries may not be enough; super-capacitors may be better but are a long ways from commercialization; so my bet would be on natural gas fed into fuel cells.

The irony is natural gas is much less carbon intensive than wood, or coal, or oil; but it is not satisfactory to purists, and hence (as with thorium nuclear energy) an irrational backlash against the right path might stick us with a diseconomical & suboptimal alternative.

Regardless, The comparison of the Volt to the Prius is incorrect as Yelnick has alluded to. The Prius has two engines running the same drivetrain and the Volt does not. The Volt has more in common with a diesel-electric locomotive than with the Prius as far as drivetrain is concerned.

The Volt is not what it could be and might be in the future. However, it's the first time in nearly a century that anyone has tried to build a road going vehicle in this way. People do forget just how much the first generation Prius absolutely sucked.

Ever hear of Hyperion Power? They were going to put nukes on every corner with neighborhood reactors. There was a lot of news about it a few years ago when oil last peaked but I don't know if it ever got off the drawing boards.

Virgil, yes, Hyperion, TerraPower and a slew of others were trying to build nuclear batteries, small nukes that could be left alone until they ran out of power. They are running into the usual roadblock: while the Obama administration keeps mentioning nukes as part of their future power choices, the push is all for wind & solar, and there seems to be no sense of urgency to fast-track the newer nukes inside the NRC or the broader DOE.

Robert Metcalfe, inventor of Ethernet and a VC at Polaris in Boston, has opined that the VC investment in these companies of $50M has to be matched with a regulatory investment of another $50M, not to mention the need to carry the company passed all those NIMBY lawsuits and planning commission delays. This makes them hard to fund, so they struggle. Easier to fund a twitter.

As a side note: ever notice that the VC backed industries that do best are those regulated the least?

A tragedy indeed. Thorium is the next best thing to Fusion, and for a mere $10B (small in the scheme of money being stimulated these days) we could build a new industry around thorium salt reactors. Karl Denninger likes to rant about how the value of the thorium thrown away in coal mining is higher than the coal itself. Power too cheap to meter …

First, how can market cycles roll over in a world undergoing massive quantitative easing (QE1 and QE2)? Is it possible that the US Federal Reserve as tamed the market so that there is no more pullbacks, swings or cycles.